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The Real Victims Of New Debit Swipe Fee Rules? Consumers, Not Banks

If banks are making less off retailers then they'll turn to the consumer to make up for the lost revenue.

There’s a lot at stake for big banks in the battle over swipe fees but the big loser will be consumers.

A judge yesterday rejected a Federal Reserve rule about the amount of money banks can take from merchants each time consumers swipe their debit cards.

The Fed’s 2011 rule said banks could collect no more than 21 cents but it seems the judge deems that figure still too high. (Prior to that there was no cap and the average swipe was costing merchants 44 cents.)

Retailers are rejoicing over the judge’s decision which came after they filed lawsuit over the Fed’s 21 cent rule.

The National Retail Federation applauded the decision saying “retailers and restaurants knew the Federal Reserve Board of Governors had grossly misapplied the swipe fee law…today’s decision is the first step in setting these initial wrongs right and will ensure that swipe fee reform is done correctly.”

What will swipe fee reform 2.0 look like? Well, the judge will decide the next steps in about two weeks but but it won’t be pretty for banks.

In fact, it will cost banks billions, according to one expert.

“[The decision] will cost mega-bank issuers billions in potential interchange fee revenues once the Board of Governors of the Federal Reserve issues its amended rule,” according to Sarah Jane Hughes, University Scholar and Fellow in Commercial Law at the Indiana University Maurer School of Law.

With the swipe fee debate back on the table one bank analyst thinks swipe fees could drop 50% for banks.

Andrew Marquardt of Evercore PartnersEvercore Partners says the interchange rate fees, as they are also known, could drop to a 12 cent cap from the current 21 cents. Today’s cap only applies to banks with more than $10 billion in assets.

Surprisingly JPMorgan Chase and Citi will feel the least impact as interchange fees make up a small piece of their revenue. Bank of America meanwhile is expected to feel a 3.6% cut in its core EPS as result of a potential 12 cent cap.

In the end, the cut in swipe fees won’t hurt big banks too much. They’ll make up for the lost revenue. How? You, the consumer.

In the world of business (and particularly in banking) when revenues are lost in one place businesses will try to make up for them in other ways. The Fed’s initial 21 cent cap has already cost banks some $16 billion by some estimates.

If banks are making less off retailers (12 cents per swipe vs. 21 cents) they’ll turn to the consumer to make up for it. Think more expensive bank accounts, higher debit card fees and minimum balances.

Banks say the swipe fees help them account for the cost of things like fraud protection costs. Evercore’s Marquardt has estimated the cost of processing debit card swipes is between 17 cents and 21 cents. Retail proponents argue it’s far less.

Either way, a further drop in the swipe fee revenue will mean higher banking costs for consumers.

“Profitability of debit card issuance may be at risk again and could drive further changes to retail banking model incl higher account maintenance fees, greater minimum balances, etc. that we have observed over the past two years since new debit interchange rates became effective,” Marquardt says in a note to investors.

Retailers have argued that a drop in the amount banks can charge them for swipe fees would mean lower costs for consumers on the price of goods.

But don’t hold your breath because that never really happened the first time the Fed put a cap on swipe fees.

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I read another example of someone’s comments on educated employer scum…

The Democrat & Republican politicians have failed the working class by rescinding or amending employee labor laws which allows BIG Businesses to greatly benefit from reduced employee protection due the working class for medical, sick, vacation, holidays and wage benefits. Why can Big Businesses eliminate a department by reclassifying it with a new department/job title and then force an already member of their company to reapply for the same job with a falsely claimed lay off, this is WRONG. Politicians from both parties can enact a law to protect employees from this unjustified lay off. Shame on both political parties for allowing BIG Businesses to reduce wages in this manner. The term lay off should only apply if the job NO longer exists and not by reclassification of a department or job title.

Hence, the false lay off practice should have politicians up in arms enacting new employer labor laws making it FRAUD, a CRIME and ILLEGAL to falsely eliminate a job or department title and offer a reclassified job as the same job, even if they add one or several new job requirements, the job is overall the same. Our Government sorely needs a new federal labor law enacted to PROTECT long term employees from this deceptive lay off practices by unscrupulous employers. In addition to this new labor law… Employers can not require employee(s) to reapply for the ‘same work’ reclassified job or re-titled department, since they are already an employee of said company. Companies must offer them the new job without lay offs or lost scaled wages earned by a senior employee. There is something seriously wrong with our politicians… politicians who side with unscrupulous big businesses that practice laying off their employees falsely without just cause.

The difference between wealthy and lower middle class workers is that lower middle class workers aren’t scheming ways to keep wages lower for the wealthy class of working people.

Consumers and banks lose big on this court ruling! The unintended consequences include: -Top 50 US debit card issuers with assets over US$50 billion will have an annual revenue shortfall of US$ 3.3 billion. -A continued and more aggressive increases in fees to consumers across all checking and debit card products, inclusive of prepaid debit. -Large banks (more than US$10 billion in assets) could withdraw from the prepaid debit market altogether, resulting in fewer product choices for consumers looking for an checking account alternatives or who do not qualify for checking.

This whole thing is all about retailers and banks and their fight for revenue. The pathetic part about it is that comes out of Dodd Frank which is supposed to protect taxpayers (who are also consumers), yet this rule ends up trying to protect retailers from banks rather than protecting consumers from banks. What nonsense. And to make matters worse, consumers will end up suffering anyway as you point out above.

Oh Jeez. No, if banks could make more money of consumers in some other area they would already be doing it. All this ruling will do is cut down a bit on the rent banks charge for essentially doing nothing.

No, because there would be a trade off. They will lose customers when they start increasing minimum balances and adding more nuisance fees. In the past, they wanted these customers because they wanted to get the money from retailers. This law changes the balance of the equation. They will take more money from less people.

Why are consumers victims here? One way or another the services being provided must be paid for. Who do you think is going to pay? Yep, the consumer: that is who is bringing money _into_ the transaction. Where’s the basis for victimization here? If you think the service is overpriced: don’t use it! Seek out lower cost providers (e.g.) credit unions too. Of course you can always haul around a basket full of cash with its attendant risks and costs. Would you like that better? In any case I don’t see why this should be approached with the victimization mindset. Just seek out the services that you want at acceptable costs — the same as you do with _EVERYTHING_ else. Why all the ruckus?

I’m not sure if this will effect me in any way as I don’t believe the fees cause retailers to raise their prices. If they did, they would stop accepting debit cards. Clearly, they see a value in accepting debit cards equal to or exceeding the fees. But, since I have disposable income, I keep a generous amount of money in my checking account and so won’t be effected by any minimum balance requirements and I’m too careful to be hit with nuisance fees. I guess it will keep the poor from having debit cards, but they voted for the man pushing for this, so they must be okay with it.

The system isnt created to make it easy to use cash. Banks push for direct deposit to get free checking and then charge retailers when the customer uses their debit card. Now retailers are fighting back (and will likely prevail) so banks will then recover those lost costs to the consumer. No matter how you spin it, consumers are the victims of this fight between retailers and banks.

Fraud protection my butt. If the charge is disputed by the consumer, the bank comes back to the retailer and takes the money. The bank has some service costs I suppose but they are certainly not losing much money – that is the retailers problem. Banks provide a necessary service but they are certainly not the “good guys” when it comes to credit cards. They charge merchants to accept cards, fee +% of transaction, and take no risk from fraud. They do have risk in lending the consumer money – but they charge interest for that. Loans/ credit cards should be the banks core business.

Big deal. Just pay with cash. Those who demand the convenience of debit cards, should pay for it — and not make everyone else foot the bill. If you prefer plastic to cash, you are supporting the debt based financial system and the bankers who love it– so I have zero sympathy for you.

The bigger questions is — given that a dollar buys less and less over the years, how long before cash in the units we now have, will no longer possible to practically carry around, given that many merchants refuse to change a lowly $100 bill, which has the purchasing power of a $5 bill in the 70′s. Before long, we will need to carry 100′s of $20 bills, just to go grocery shopping, so cash may not be a practical option except maybe for getting a lollipop, and more merchants will refuse paper cash, as they now refuse payment with pocketfuls of change. In the end, unless the people demand a change — the majority of us will be pathetic banker debt slaves and dependents.